Trading Pros and Cons
Do multinationals transfer culture? Evidence on female employment in China
Heiwai Tang & Yifan Zhang
Journal of International Economics, forthcoming
Abstract:
We study the global diffusion of culture through multinationals, focusing on gender norms. Using data on manufacturing firms in China from 2004 to 2007, we find that foreign affiliates from countries with a more gender-equal culture tend to employ proportionally more women and appoint more female managers. They also generate cultural spillovers, as we find that domestic firms' female labor share increases with the prevalence of foreign affiliates in the same industry or city. Based on a multi-sector model that accounts for firm heterogeneity in productivity, gender bias, and learning, we perform counterfactual exercises. By hypothetically eliminating firms' gender biases, we observe a 5% increase in China's aggregate total factor productivity, 19% of which is due to spillovers from foreign affiliates.
The Economic Origins of Authoritarian Values: Evidence From Local Trade Shocks in the United Kingdom
Cameron Ballard-Rosa et al.
Comparative Political Studies, forthcoming
Abstract:
What explains the backlash against the liberal international order? Are its causes economic or cultural? We argue that while cultural values are central to understanding the backlash, those values are, in part, endogenous and shaped by long-run economic change. Using an original survey of the British population, we show that individuals living in regions where the local labor market was more substantially affected by imports from China have significantly more authoritarian values and that this relationship is driven by the effect of economic change on authoritarian aggression. This result is consistent with a frustration-aggression mechanism by which large economic shocks hinder individuals' expected attainment of their goals. This study provides a theoretical mechanism that helps to account for the opinions and behaviors of Leave voters in the 2016 UK referendum who in seeking the authoritarian values of order and conformity desired to reduce immigration and "take back control" of policymaking.
Life of the party: The polarizing effect of foreign direct investment
Zachary Cohle & Alberto Ortega
European Journal of Political Economy, forthcoming
Abstract:
As countries are becoming increasingly connected with one each other, it is essential to study the influence multinational firms have on political outcomes in the countries where they locate. This paper examines the effects of foreign direct investment (FDI) on party vote shares in 149 countries between 1990 and 2017. We construct a database by cataloging political parties into specific political positions. We use a measure of linguistic distance between countries to construct a novel instrumental variable using the average exchange rate of the surrounding region. With this IV, we capture the relative attractiveness of FDI in host countries. Our results indicate that increased FDI causes an increase in vote shares for right-wing parties. We also find suggestive evidence of increased left-wing support in developing countries and legislative elections. We show that more moderate parties, specifically center-right parties, generally lose vote shares as FDI increases.
Comparing Some Benefits and Costs from Eliminating the U.S. Trade Deficit with Low Wage Countries
Jon Neill
International Advances in Economic Research, May 2021, Pages 91-103
Abstract:
This paper presents estimates of the consumers' surplus that would be lost if manufactured goods currently being imported to the U.S. from low wage countries were instead produced domestically. The study focuses on reducing the imports of consumer goods from such countries by about $600 billion, enough to eliminate the trade deficit in consumer goods with China, Mexico, and other major low wage trading partners. Estimates of the increase in compensation to U.S. workers that would result from such a curtailment in trade are also presented. These estimates have been made using a computational model that, unlike other studies, does not require strong assumptions regarding consumer preferences and production functions. The model was calibrated with data from the U.S. Census Bureau, Bureau of Economic Analysis, and Conference Board. Another departure from previous studies is the size of the reduction in the trade deficit. The reduction considered here is considerably less and, therefore, more likely to result from policy changes, than the reductions others have analyzed. At most, these estimates lend weak support to the claim that the loss to consumers from the price increases precipitating from a meaningful, but far less-than-draconian, curtailment in trade would be greater than the compensation that workers stand to gain from it. In fact, it is more likely that there would be a net benefit to a large number of workers, contrary to what other studies have found.
Dominant Currency Debt
Egemen Eren & Semyon Malamud
Journal of Financial Economics, forthcoming
Abstract:
We propose a "debt view" to explain the dominant international role of the dollar. Within a simple capital-structure model with debt-currency choice, we show that the "dominant currency" is the one that (1) depreciates in global downturns over horizons of typical debt maturity and (2) has the steepest nominal yield curve. Empirically, we show the dollar fits this description better than other major currencies. The debt view can explain dollar-debt-issuance patterns over the past two decades. It also offers insights into the future of the dominance of the dollar in the aftermath of the COVID-19 crisis.
Quid pro quo? Political ties and sovereign borrowing
Gene Ambrocio & Iftekhar Hasan
Journal of International Economics, forthcoming
Abstract:
Do stronger political ties with a global superpower improve sovereign borrowing conditions? We use data on voting at the United Nations General Assembly along with foreign aid flows to construct an index of political ties and find evidence that suggests stronger political ties with the US is associated with both better sovereign credit ratings and lower yields on sovereign bonds especially among lower income countries. We use official heads-of-state visits to the White House and coalition forces troop contributions as additional measures of the strength of political ties to further reinforce our findings.
Encouraging domestic innovation by protecting foreign intellectual property
Robert Gmeiner & Michael Gmeiner
International Review of Law and Economics, forthcoming
Abstract:
This paper examines the relationship of respect for foreign intellectual property (IP) and domestic innovation. In a global economy, countries may choose to protect the IP of their own citizens, foreigners, or both or neither. We develop a model that shows that countries will have higher levels of innovation when respecting both domestic and foreign intellectual property. We test this prediction and show that domestic innovation is positively related to respect for both foreign and domestic IP. Intuitively, respect for domestic IP encourages innovation. We demonstrate the less intuitive case that protection of foreign IP further incentivizes domestic innovation.
Does the party in power affect FDI? First causal evidence from narrow margin US state elections
Kunyu Wang & Anthony Heyes
Party Politics, forthcoming
Abstract:
Does the party of government influence the amount and type of inward foreign investment? Correlational studies provide inconsistent evidence. Moreover no existing study, for any level of government or any jurisdiction, uses methods that allow for causal inference. We apply regression discontinuity methods to a set of narrow margin US gubernatorial elections. Over the course of a 4-year term the election of a Republican governor causes a 17% boost in the growth of manufacturing-oriented FDI stock, compared to a Democrat. However, the same approach provides no evidence that partisanship matters for the overall level of FDI.
Negotiating exclusion: Regulatory barriers in preferential trade agreements
İpek Çınar & Robert Gulotty
Economics & Politics, forthcoming
Abstract:
Trade negotiations now center on regulations. This paper argues that these negotiations can raise uncertainty over fixed costs. We develop a simple model of exporter competition to show how uncertainty generated by negotiations redistributes profits across firms. We show that regulatory uncertainty reduces competition by deterring entry on the part of less productive firms and shifting market share toward top producers. Empirically, we show that this negotiation-driven uncertainty can help explain the economically concentrating effects of preferential agreements. Preferential trade agreements combine tariff concessions with regulatory changes that ensure the benefits of the agreement are limited to member states. Using novel data covering firm-level export activity and public investment decisions in the automotive and automotive parts sectors during NAFTA, we find that negotiation-driven uncertainty deterred non-North American producers while benefiting the top American auto manufacturers.
International Cooperation and Natural Disasters: Evidence from Trade Agreements
Aleksandra Conevska
International Studies Quarterly, forthcoming
Abstract:
Environmental shocks in the form of natural disasters are well known for their impact on domestic economies. Less known, however, is their impact on the global economy. The scant existing literature suggests that macro-economic impacts manifest in observed empirical decreases in international trade. The literature, however, does not examine whether the impact of natural disasters on trade varies for trading partners with differing levels of market integration. This paper examines if preferential liberalization serves to protect or buffer against the negative economic consequences of natural disasters. I show that deep preferential liberalization can not only protect countries against the negative macro-economic impact of natural disasters but can actually allow countries to increase exports during natural disaster events that otherwise induce trade decline. These findings suggest that by allowing countries to expand the quantity and the range of exports, preferential trade agreements lead to enhanced resilience against exogenous shocks.
Direct flights and cross-border mergers & acquisitions
Chi Zhang, Ivan Kandilov & Mark Walker
Journal of Corporate Finance, forthcoming
Abstract:
Prior evidence indicates that proximity increases investments resulting in stronger economic growth. The introduction of a non-stop direct flight between two locations in different countries allows for faster travel and a lower cost of acquiring information, potentially facilitating acquisitions abroad. We examine this channel by considering cross-border mergers and acquisitions (M&A) activity between China and the U.S. Our results suggest that direct flights matter most in target selection. Direct flights are more important for M&A activity where information asymmetry is greater and for first time acquirers in the market. We demonstrate that endogeneity is unlikely to drive the results.